GAO Urges CMS to Finalize ACA Medicaid Drug Pricing Reforms

The GAO recently issued a report on CMS efforts to implement Medicaid drug pricing reforms mandated by the Affordable Care Act (ACA). Specifically, the report discusses CMS development of the National Average Drug Acquisition Cost (NADAC) benchmark of retail pharmacy acquisition costs, and how NADAC amounts compare to ACA-based federal upper limits (FULs). Based on first quarter 2013 data, GAO found that draft FUL amounts calculated under the ACA formula were about 1.4% lower than the total NADAC amount in aggregate for 1,035 outpatient drugs. On the other hand, ACA-based FULs for individual drugs ranged from 96% lower than to 404% higher than the NADACs for the same drugs. The GAO also found large differences between the total ACA-based FUL amount and the total NADAC amount for generic and for branded generic versions. According to the GAO, total ACA-based FUL amount for the generic versions was 19% higher than the total NADAC amount, but for the branded generic versions the ACA FUL amount was 26% lower than the NADAC.

The GAO concluded that CMS is close to having a formula under which FULs would better reflect pharmacy acquisition costs, but it observes that CMS continues to apply FULs that were calculated more than four years ago. The GAO also observed that the relationship between ACA-based FULs and NADACs may be affected by factors such as rebates and discounts that are not reflected on pharmacy invoices, which will necessitate continued CMS monitoring. The GAO therefore recommended that CMS (1) expeditiously implement the ACA-based FUL formula and (2) monitor the relationship between the ACA-based FULs and the NADACs on an ongoing basis. HHS concurred with these recommendations; noting that it intends to finalize the ACA Medicaid FULs for multiple source drugs in July 2014 (CMS indicated to GAO that the agency was still considering how the ACA-based FULs would apply to branded generic versions in the final rule).

CMS Announces Plans to Finalize ACA Medicaid Drug Pricing Policy in July 2014

After more than two years of releasing draft average manufacturer price (AMP)-based federal upper payment limit (FUL) files and methodology documents, CMS now expects to finalize the ACA Medicaid FULs for multiple source drugs in July 2014. While CMS intends to provide additional guidance in the months to come, the agency is encouraging states to consider what changes may be needed to contracts with pharmacy claims processors and pricing compendia, as well as state plan amendments that need to be submitted to use the FUL data.  CMS also has posted final National Average Drug Acquisition Cost (NADAC) pricing files, which CMS points out could be used by states to meet the FULs aggregate upper limit if a state plan amendment is submitted. CMS suggests that as states revise their reimbursement for the ingredient cost of a drug to stay within the FUL aggregate, they should consider whether current dispensing fees continue to provide adequate reimbursement for the cost of dispensing prescriptions to a Medicaid beneficiary.

CMS Medicaid Drug Pricing Webinar: Draft Federal Upper Limits and Draft Survey of Retail Prices (Dec. 5)

On December 5, 2012, CMS is hosting a webinar on various Medicaid drug pricing issues. The webinar will cover the CMS draft three-month rolling average FUL file; draft National Average Drug Acquisition Cost (NADAC) file; draft National Average Retail Price (NARP) file; and draft Monthly New Drug Report.  A taping of the event and slides will be available for one week after the webinar.  (This webinar originally was scheduled for Nov. 15).

CMS Invites Comments on Draft Medicaid Drug Pricing Data (FULs, NARP, NADAC)

On October 5, 2012, CMS released a number of draft Medicaid drug pricing files and related documents for review and comment. Among other things, CMS has posted the June 2012 and July 2012 draft average manufacturer price (AMP)-based Medicaid federal upper limit (FUL) files.  Based on comments that month-to-month fluctuations in the AMP-based FULs “may create problems for pharmacies because they will be unable to predict resulting state reimbursement rates,” CMS has developed a draft three-month rolling average FUL file consisting of the weighted average of the current and two previous monthly draft AMP-based FULs. CMS is posting these draft files, and the draft methodology used to calculate the draft three-month rolling average FUL, for review and comment only. While CMS expects three-month rolling average FULs to fluctuate less than monthly FULs, CMS observes that “the draft three-month rolling average FULs incorporates pricing data older than the current monthly pricing that may be less reflective of pharmacies’ current purchase prices.” CMS is accepting comments on the monthly and three-month rolling average draft AMP-based FULs and the methodologies used to calculate them.

CMS also released for comment draft National Average Retail Price (NARP) data, which reflects prices paid for drugs to retail community pharmacies for individuals with Medicaid, cash paying customers, and those with certain third party insurance. CMS expects the reference pricing to assist states in comparing their current pricing policies to that reflected in the draft NARP. In addition, CMS has posted for comment draft National Average Drug Acquisition Cost (NADAC) data, which is based on a voluntary survey of pharmacy invoices, and a draft Monthly New Drug Report that shows newly marketed single source drugs that are currently generally available through wholesalers. CMS states that after it considers comments on all of these files (a comment deadline is not specified), the agency plans to release these data files in final form, with updated files posted on at least a monthly basis. States can use the monthly AMP-based FUL, or the three-month rolling average FUL, once finalized, to develop a pharmacy reimbursement methodology that will allow their pharmacy payments to remain within the FUL in the aggregate. CMS points out that any state that wants to change its pharmacy reimbursement methodology must submit a state plan amendment to CMS for review and approval. 

CMS Webinar on Retail Community Pharmacy Consumer Prices Survey (July 26)

CMS is hosting a webinar on July 26, 2012 to discuss the draft methodology for Estimating National Average Retail Prices (NARP) for Medicaid Covered Outpatient Drugs

CMS Webinar on Medicaid National Average Drug Acquisition Cost Survey (June 28)

CMS is hosting a webinar on June 28, 2012 to discuss its "Draft Methodology for Calculating the National Average Drug Acquisition Cost," which may be used as a reference price for states to consider when setting their Medicaid drug reimbursement methodology.  Advance registration is required.  CMS will post a taping of the webinar and related slides for one week on its Medicaid drug pricing website.  CMS intends to host two additional webinars on the survey of retail prices later this summer, focusing on: (1) the draft methodology document for Part I of the Retail Community Pharmacy Consumer Prices; and (2) the draft results for the National Average of Retail Prices NARP and the NADAC files.

CMS Accepting Comments on Draft Methodology for Calculating National Average Drug Acquisition Cost (NADAC)

CMS has released its "Draft Methodology for Calculating the National Average Drug Acquisition Cost," which may be used as a reference price for states to consider when setting their Medicaid drug reimbursement methodology. Among other things, the draft methodology indicates that CMS plans monthly surveys of chain and independent – but not specialty – pharmacies, and that NADACs will be reviewed and updated both weekly and monthly. CMS also proposes a “quality assurance” process to remove survey response “costs that do not fall within a reasonable range,” which appears to give CMS’s contractor (Myers and Stauffer LC) wide latitude to disregard survey responses. Comments will be accepted until June 21, 2012.

CMS Discusses Details of New "National Average Drug Acquisition Cost" Survey

This post was written by Robert J. Hill, Joseph W. Metro and Vicky G. Gormanly.

On August 4, 2011, CMS held an "External Stakeholders Meeting" at its Baltimore headquarters to discuss the development of a survey for what it is now calling "National Average Drug Acquisition Cost" or "NADAC". Earlier this year, CMS announced that it would publish a pricing benchmark based upon pharmacies' acquisition costs for both brand and generic drugs, which State Medicaid programs could use instead of Average Wholesale Price (AWP) or Wholesale Acquisition Cost (WAC) to establish pharmacy reimbursement rates. CMS has entered into a contract with Myers & Stauffer, LC, to develop NADAC; Myers & Stauffer currently collects pharmacy acquisition costs for Oregon and Alabama, two states that have made such costs an element of their Medicaid pharmacy reimbursement.

Representatives of Myers & Stauffer handled the bulk of the presentation. They indicated that they plan to survey approximately 2,000 - 2,500 independent, chain and specialty pharmacies monthly, selected randomly from the 62,000 such pharmacies; "closed door" pharmacies such as mail order and long-term care pharmacies would not be included. Given that many "specialty" pharmacies dispense primarily through the mail, it is not clear why they have not been excluded along with non-specialty mail order pharmacies or whether it suggests that CMS might view them as community retail pharmacies for purposes of manufacturer price reporting under the Medicaid rebate statute. Pharmacies will be asked to submit their invoice data for all drug purchases made during the most recent 30-day period (it wasn't clear how the period would be defined). Myers & Stauffer stated that pharmacies could simply photocopy invoices and send them in; alternatively, invoice data could be submitted in electronic form via e-mail, or the pharmacy's wholesaler could submit the data on behalf of the pharmacy. CMS intends to minimize the submission burden on pharmacies.

Whether or not to respond to the survey request will be voluntary on the part of pharmacies. Monthly submissions will not seek data on discounts, rebates, chargebacks, free goods, or other off-invoice transactions. Instead, CMS will conduct a separate survey, on an annual basis, for that information--for which pharmacy responses will also be voluntary. Once Myers & Stauffer gets that data, they and CMS "will determine next steps"; apparently there is no current intent or specific plan to make it part of the NADAC that CMS will be publishing. One of the main purposes of that survey will be to look for "trends" over time; if this is collected only annually, then it would presumably be at least a year before this has any impact.

Myers & Stauffer expects a 2-month lag in the data--i.e., data published for January pricing would be from November. Myers & Stauffer recognizes that this lag could put pharmacies "underwater" (for brand drugs) when manufacturers implement price increases, if the increased acquisition price were not reflected in NADAC until two months later; accordingly, Myers & Stauffer is working with CMS to take that into account, by monitoring WACs, and adjusting reported NADAC prices when WACs are increased. They stated that they could do this given that their experience shows average acquisition costs are closely correlated with WAC. Nevertheless, the timeliness of such adjustments is to be determined, particularly for WAC increases between monthly NADAC updates; CMS noted that updates would be "at least" monthly.

It will be up to individual States whether or how to use NADAC, but if they want to use it they will need to do a State Plan amendment which CMS would have to approve. Joseph Fine, CMS's MPA Technical Director, Division of Pharmacy, who is a pharmacist, referenced an industry study from several years ago indicating pharmacies' dispensing costs are in the range of $10.00 per prescription, rather than the $2.00 - $2.50 dispensing fee in many current reimbursement formulas. He implied that CMS would expect a State formula with no markup on ingredient cost would be approved only if the dispensing fee were much higher, and indicated a belief that this creates an opportunity for the focus of pharmacy reimbursement to change from a focus on margin over ingredient cost to payment for what is actually done by the pharmacy. Nevertheless, in answers to public questions, CMS refused to give any parameters about what it would or would not require.

Prices will be published for each strength/dosage form of a given drug, with separate prices for generic and brand. "Generic" and "brand" will be defined based upon CMS covered outpatient drug file; in answering a question, Mr. Fine appeared to indicate that single source and innovator multiple source drugs would be considered brands, and noninnovator multiple source drugs considered generics. However, CMS did not directly address how authorized generics would be treated; since these are classified as innovator multiple source, it would appear that they would be mixed into the "brand" reimbursement, even though they are often treated as generics in pharmacy reimbursement today.

Data will be analyzed to exclude "outliers." In addition, 340B pharmacies will be excluded, although it is not clear how emerging 340B contract pharmacy arrangements will be excluded.

CMS still expects to publish its first file of NADAC prices by the end of the year. CMS pledged to be fully transparent in developing the NADAC, and says it will look for comments after NADAC is published.

The ultimate impact of the survey is far from clear, given its voluntary nature and the fact that it will only focus on gross acquisition costs and not off-invoice transactions and adjustments. For branded drugs, it is not clear how NADAC will be materially different from WAC data available through pricing services, and the lag in reflecting manufacturer price increases appears to present problems. For generics, the new AMP-based "Federal Upper Limit" prices to be published by CMS under the Affordable Care Act will reflect manufacturer discounts (subject to various issues with calculating and reporting AMP), and will constitute an upper limit of Medicaid ingredient cost reimbursement--albeit at "not less than" 175% of utilization-weighted average AMP. Nevertheless, development of NADAC was prompted by interest from State Medicaid programs, and some States may propose to utilize it as the basis--or one basis--of their pharmacy reimbursement methodologies. Some private payors may also seek to utilize it. Accordingly, we will be monitoring further developments with respect to NADAC.

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